What's that? (Contingencies)

Your offer to purchase can have many contingencies. There are 3 contingencies that are major protection for buyers. I NEVER recommend waiving them.

The Wisconsin State Offer To Purchase along with it’s disclosures and addendums, is really, really long. There are pages of legal jargon. I recommend to all of my buyers that they review it before getting serious about making an offer on a home. Buyer's Agents help their buyers with this. For Sale By Owner Sellers and Buyers should have an attorney go over the contract with them.

Here is a quick overview of the major contingencies when buying a home.

Think of a contingency as a blockade – the contract falls apart if the blockade (contingency) is not removed.

The Loan Contingency (occurs, on average, around 30--45 days after the offer is accepted)

A loan contingency protects the buyer when they need a mortgage loan to complete the purchase. Your lender and underwriters will review the legal documents for the property as well as re-verify the buyer’s credit, employment, and bank balances.

The lender occasionally finds new information during this process that can threaten the loan approval, but if you are working with an experienced lender this does not happen often. The loan contingency protects the buyer from the uncertainty of the loan process. If the lender unexpectedly denies the final loan approval the buyer is protected. You have a legitimate reason to cancel your contract.

The Appraisal Contingency

A mortgage lender requires an appraisal to ensure their loan is protected. The goal is for the home to appraise for the purchase price.

The lender orders the appraisal (it is part of your closing costs).

What happens if the appraisal is lower than the purchase price?

The appraisal contingency in the real estate purchase contract states that the home will appraise for no less than the purchase price. If the appraisal is too low the contract might fall apart. Note: The appraiser is not the enemy. They are trying to justify the buyer’s offer on the home and prevent you from overpaying for your home.

If the appraisal is "low," the agents help you negotiate a compromise! The seller might lower their purchase price or the buyer might agree to increase their down payment amount. If they can not agree on a compromise the contract may fall apart.

The Inspection Contingency

The inspection contingency involves the physical condition of the home. This continency is usually met within 15 days of offer acceptance.

If the buyer doesn’t like what they discover they might cancel the deal. But, it is more likely that the buyer will ask the seller to either fix a defect or negotiate a credit to them at closing. The seller can agree, disagree, or propose a counteroffer to the buyer’s request.

What Happens If The Contingency Is Not Removed?

There is almost an entire page devoted to this topic in the Real Estate Purchase Contract. There are strict rules designed to give everyone a chance to state their case and to keep the conversation moving forward. If the parties can not agree on how to remove this contingency, the contract falls apart.

Remember:

Each real estate transaction is unique. The examples I’ve described may not apply to your situation.